Result Analysis- Larsen & Toubro Infotech Ltd.

Result Highlight: 

• LTI Consolidated Revenue rose 8.8% QoQ and 25.6% YoY to Rs 3767 crore – higher than the estimates of Rs. 3677 Crore

• Consolidated PAT rose 11.12% QoQ and 21.05% YoY to Rs 551.5 crore – higher than the estimates of Rs. 533.5 Crore. Reported strong Cash from Operations at Rs. 598.4 Cr. which is 109% of Net Profit.

• Attrition increased to 19.6% (up 440bps QoQ).

• All verticals showed good sequential as well as YoY & QoQ growth. BFSI contribute 46.67% to the total revenue of the company.

• LTI added one/three/five new clients in the over USD50m/USD20m/USD10m bracket in 2QFY22. Total active clients increased to 463 (v/s 438 in 1QFY22).

• In terms of geography, growth was broad based with core geographies – North America and Europe – growing 9.1% and 7.5% QoQ CC.

• Headcount increased by 4,084 to 42,382 in 2QFY22.

• The company approved an interim dividend of Rs 15 per share. 

Management commentary: 

• Management said growth in 2QFY22 could have been higher if supply-side issues were not present. H2Q22 is seasonally strong for LTI and seasonality is expected to continue in FY22.

• Company is looking to hire 5500 freshers in FY22 (v/s its previous target of 4,500 freshers). It is also looking to hire 1000 employees, with 1-2 years of experience.

Conference Call Highlights 

• Guidance: Management maintained its PAT margin guidance in the 14-15% range. Claimed that the growth momentum to sustain for at least three years from now.

• LTI reported an EBIT margin of 17.2% (+80bp QoQ) in 2QFY22 due to 70bps of SG&A leverage was offset by 70bps of margin drop due to utilization. Tailwinds from higher working days and offshore mix was partly offset by higher employee cost.

• Billed DSO stood at 61 days (vs 60 days in 1Q21).

• The industry is witnessing a sharp increase in attrition, particularly in the 3-6 year experience bracket. This is primarily because of a bounce back in demand and lack of industrywide fresher hiring in the past 3-4 years.

Outlook:

Larsen & Toubro Infotech Limited (LTI) reported revenue above the Street expectations in the quarter ended September 2021. Growth was broad-based across verticals and geographies. Historically H2 has been seasonally strong and same trend is expected to continue in H2FY22. Management is confident of top-quartile revenue performance and delivering at least USD2bn revenue in FY22 on strong demand, deal pipeline and good progress on client mining. LTI won one new large deal in Europe with TCV of $30mn for 5 years. LTI has stable DSO and robust cash flow.  At the CMP of Rs. 6800, LTI is trading at PE multiple of 53.35x.  Valuing the company at 39.1x FY23E EPS, we recommend accumulate in the range of Rs 6700- Rs 6750 for the Target Price of Rs.7720.

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